CHAPTER 4: TRADE DISPUTES
60. This chapter examines two means by which
the EU can protect itself from malicious actions by foreign exporters
or third countries: trade defence mechanisms, and the WTO Dispute
Settlement Mechanism.
Trade defence
BOX 4
Anti-dumping
| Dumping is the practice of exporting at below cost to gain market share. Article VI of the 1994 General Agreement on Tariffs and Trade permits the imposition of anti-dumping duties against dumped goods equal to the difference between their export price and their normal value (measured either by estimates of price on the home market, the cost of production or in the case of non-market economies the price of equivalent products on the open world market) if dumping causes injury to producers of competing products in the importing country. The dumping margin is the degree to which prices of the dumped good is below the normal value: the British Ceramic Confederation noted that the imposition of margins of up to 70% demonstrated the scale of the problem (p 1).
The WTO recorded that 2,938 anti-dumping actions were initiated in the ten years to June 2006, although levels have fallen since a peak in the period from 1999 to 2001 (p 244). Trade Defence measures impact on about 1% of EU trade (Q 273).
The Commission published a Green Paper in December 2006 which proposed reforms to the use of trade defence instruments including the application of margins in anti-dumping cases. Mr van den Hoven explained that some sectors had seen the proposals in the Green Paper as a sign that the Commission did not care about industry (Q 273). The CBI stated that they were disappointed that "protectionist forces" had blocked "much needed" reforms (p 5). The proposals have not been advanced since the Green Paper.
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61. Mr van den Hoven explained the need
for trade defence measures: "the reality of the international
trading system is that it is not always fair and that there is
a lot of dumping and a lot of subsidisation around the world".
His organisation had witnessed increasing state intervention in
the economies of emerging countries and this distorted trade (Q 270).
He said that if Europe did not protect its basic chemical, metal
or textile industries from unfair competition, then the high-value
part of these markets, and the industries they supported (such
as pharmaceuticals, paints and automotive parts), would also be
eroded (Q 273). His members did not want to use trade defence
measures but did want them in place to act as a long stop, and
saw their presence as a necessary part of liberalisation (Q 273).
62. EEF/UK Steel explained that anti-dumping
measures had become more contentious, and compared them to the
EU's internal market rules on abuse of a dominant position. As
measures imposed by the EU generally have a five-year "sunset
clause", and the Commission has proved itself prepared to
modify and adjust the scope of measures during their lifetime,
EEF/UK Steel believed that the EU's measures were targeted and
proportionate (p 5). The organisation described the EU's
approach as the most liberal in the world and suggested that any
revision should be accompanied by negotiation with other WTO members
to liberalise their anti-dumping regimes (p 6). The ITC stated
that the EU's approach was "relatively fair" compared
to the practices in some other jurisdictions (p 121).
63. Dr Holmes said reform of the rules was
still necessary as the current position discriminated against
European firms which wished to outsource (Q 43). The Food
and Drink Federation and the Sporting Goods Industry Association
explained that the EU's trade defence measures did not reflect
the "widened definition of European interests", i.e.
the move towards offshore production by EU-based firms (pp 3,
5). The ITC suggested that the rules needed to be more predictable
and transparent, with unambiguous definitions of important concepts
such as "community interest" and longer consultation
and data collection periods (p 5). The British Ceramic Confederation
criticised the "undue reliance" on anti-dumping margins
and noted that quotas were harder to circumvent (p 1).
64. Mr van den Hoven agreed that the position
was complicated, and said that the priorities for industry were
clarity and predictability as these would allow firms to make
decisions about production location without having to worry about
the strength of rivals' lobbyists or of different Member State
views in the Council (Q 273). He added that a proposed solution
of giving dispensations (to avoid anti-dumping tariffs) to European
affiliate firms based overseas would fall foul of WTO rules (Q 273).
65. The Commission explained that the need for
trade defence instruments would remain, and that its consultation
in 2007 had confirmed that stakeholders agreed with this assessment.
The consultation also revealed a variety of views on the effectiveness
of the current trade defence measures. At present there is no
consensus among EU Member States about how to improve the system
and the Commission told us that it would consult further and bring
forward proposals "in due course" (p 5).
66. It is possible that dumping will increase
during a downturn and an associated oversupply of goods. We
are disappointed that the Commission has not made progress on
reforms to the anti-dumping rules and ask the Government to work
with other Member States to prioritise this work. We may return
to this subject in a future inquiry.
Dispute Settlement
BOX 5
The WTO Dispute Settlement Mechanism
| The Dispute Settlement Mechanism was introduced by the WTO in 1995 to allow members to assert their rights under multilateral trade agreements. It prohibits a member from resorting to unilateral action in response to alleged violations by other members. All WTO members have identical rights to seek redress if they believe one of their trading partners is breaking WTO rules. The system is operated under the Understanding on Rules and Procedures Governing the Settlement of Disputes, an agreement concluded during the Uruguay Round. It sets out four phases in the dispute settlement process: consultations; consideration by a panel; opportunity for appeal; and surveillance of implementation.
All WTO members are represented on the Dispute Settlement Body which has the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorise suspension of concessions and other obligations. Dispute Settlement Panels are ad hoc and made up of distinguished practitioners. These issue reports containing their findings for adoption by the Dispute Settlement Body, and which may be appealed to the Appellate Body. The Appellate Body consists of seven experts in international trade law, appointed for four years (renewable once).
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67. Witnesses told us that the Dispute Settlement
Mechanism had become a means by which the WTO could resolve key
issues which could not be resolved multilaterally. Indeed, Dr Holmes
suggested the boldness of its decisions was reducing pressure
on the multilateral talks to produce a deal (Q 33). Professor Higgott
called it the "jewel in the crown" for the WTO (Q 70).
Lord Mandelson, Secretary of State for Business, said it was "the
most meaningful, sophisticated piece of architecture that we have
globally. There is no form of global governance in any other sphere,
including frankly many aspects of the United Nations … that
has the same bite and effectiveness as the WTO has in the operation
of its Dispute Settlement Mechanism" (Q 605). Professor Evenett
noted that while countries were sometimes unwilling to engage
in liberalisation, interest in the WTO as a system of rules remained
and was particularly strong amongst poorer countries which recognised
the benefit of knowing they could not be discriminated against
(QQ 53-54, 60). Developing countries have instigated more
than 40% of disputes under the WTO, of which 42% have been directed
against other developing countries (p 244).
68. Dr Mendoza told us that the replacement
of negotiations by litigation had "serious limitations"
(Q 440). Mr van den Hoven raised a concern that losers
in Dispute Settlement cases would have to make reforms without
gaining anything in exchange (as they would do in a multilateral
deal) and that this would be politically difficult (Q 261).
Professor Evenett was also keen to emphasise the risk of
relying on the Mechanism to further trade liberalisation, as the
system might collapse should the US or EU lose a sensitive case
and refuse to comply with the ruling (Q 73). Mr Erixon
gave examples of the USA-EU Boeing-Airbus dispute[26]
and complaints from Japan and the USA about the EU's tariff reclassifications
as difficult cases which would be best solved by negotiation rather
than legal means (Q 278).
69. Professor Evenett further noted that
developing countries had little retaliatory capability should
a country not honour a ruling under the Mechanism (Q 72).
As an example, Mr Erixon highlighted Antigua's inability
to take retaliatory action against the USA should the USA fail
to meet its obligations in a ruling on online gaming that Antigua
had won; to do so Antigua would need to raise tariffs against
imports from the USA which would hurt Antiguan citizens (Q 281).
Ambassador Falconer, Chair of the WTO Negotiating Group on Agriculture,
explained that a country could delay implementation of a ruling
by five years by appealing against the finding, and then waiting
for an enforcement review before making any changes (Q 510).
More generally, he was also concerned that the strict rules-based
approach of the Mechanism would mean that political realities
would be ignored: trade policy did not exist in a vacuum (Q 511).
70. Ambassador Gail Mathurin, Permanent Representative
of Jamaica to the WTO, discussed the dispute between the USA and
the EU over bananas to highlight some of the problems with the
Dispute Settlement Mechanism. The panel has ruled against the
EU's preferential treatment for some banana producers and as a
consequence the EU will have to change its tariff structure on
the products. While Jamaica has been able to make representations
to both parties in the dispute, it has not been able to make a
formal representation to the panel. The inability to impact upon
cases between third parties which have a "profound"
economic impact was described as difficult to accept (QQ 526-529).
71. Despite these factors, Commission officials
and Mr Erixon expected increased use of the Mechanism in
lieu of a Doha Round conclusion (QQ 134, 278), a prospect
to which they did not look forward (QQ 110, 134, 278). While
the Commission expected initial cases, particularly in agriculture,
to be successful (Q 134), we also heard that there was a
risk that the Mechanism might become separated from the realities
of trade without regular Rounds which could be used to update
its provisions, prevent it from becoming clogged up with highly
contentious issues (such as trade defence measures and genetically
modified produce (Q 135)), and deal with the side-effects
of its rulings. Lord Mandelson in his role as European Commissioner
for Trade, added that WTO members would lose their confidence
in the Mechanism without the conclusion of trade rounds (Q 260).
72. Mr Lamy elaborated on this point. He
expressed concern that the settlement panel and appellate body
would have to apply rules, some of which were sixty years old,
to contemporary cases. He told us that he would prefer to have
countries adjusting the rules than what he had heard critics refer
to as the "seven gnomes in Geneva" (Q 418). Ambassador
Gosper, Chair of the WTO General Council, noted that after 13
years of operation, the Mechanism needed refining and modifying
and was hopeful that minor improvements might be included in the
eventual Doha deal even though they were not formally part of
the single undertaking (QQ 377, 390).
73. We heard some suggestions for improvements
to the Dispute Settlement Mechanism. Professor Higgott called
for more support for poorer members of the WTO; developing countries
are complainants in less than a half of cases and he argued that
the underlying reason for this was the cost and complexity of
cases (Q 70). Professor Higgott told us that the Warwick
Commission had concluded there was a need to promote transparency
in the Dispute Settlement Mechanism: it has suggested that panels
and hearings be open to the public. (The EU and the USA have allowed
this at hearings where they are the parties (Q 130)). The
Warwick Commission has also promoted a more professional approach
to the appointment of the panel, rather than the ad hoc
use of diplomats or academics (Q 130).
74. Mr Thomas MP, Under-Secretary of
State for Trade and Consumer Affairs told us that the Dispute
Settlement Mechanism would be fundamental to the future role of
the WTO. He agreed that it needed revising, but told us that the
Government was yet to look at what changes they might wish to
propose (Q 579).
75. Because its rulings have largely been
accepted, the WTO Dispute Settlement Mechanism has generally been
a success, although smaller participants have faced delays and
third parties may be prejudiced by the outcome of cases between
larger parties. We do recognise the need for support for Least
Developed Countries and non-combatants to participate; more should
be done to promote transparency. We look forward to the Government's
proposals for these changes.
26 The United States have filed a complaint regarding
the financial support given by EU Member States to Airbus and
the EU has filed a similar complaint regarding support by the
US government for Boeing. Back
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